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Mergers, Innovation, and Entry-Exit Dynamics: Consolidation of the Hard Disk Drive Industry, 1996–2016

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  • Mitsuru Igami
  • Kosuke Uetake

Abstract

How far should an industry be allowed to consolidate when competition and innovation are endogenous? We develop a stochastically alternating-move game of dynamic oligopoly and estimate it using data from the hard disk drive industry, in which a dozen global players consolidated into only three in the last 20 years. We find plateau-shaped equilibrium relationships between competition and innovation, with heterogeneity across time and productivity. Our counterfactual simulations suggest the current rule-of-thumb policy, which stops mergers when three or fewer firms exist, strikes approximately the right balance between pro-competitive effects and value-destruction side effects in this dynamic welfare trade-off.

Suggested Citation

  • Mitsuru Igami & Kosuke Uetake, 2020. "Mergers, Innovation, and Entry-Exit Dynamics: Consolidation of the Hard Disk Drive Industry, 1996–2016," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(6), pages 2672-2702.
    • Handle: RePEc:oup:restud:v:87:y:2020:i:6:p:2672-2702.
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    File URL: http://hdl.handle.net/10.1093/restud/rdz044
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    Citations

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    Cited by:

    1. Rachel Griffith & John Van Reenen, 2021. "Product market competition, creative destruction and innovation," IFS Working Papers W21/43, Institute for Fiscal Studies.
    2. Tommaso Valletti & Hans Zenger, 2021. "Mergers with Differentiated Products: Where Do We Stand?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(1), pages 179-212, February.
    3. Suguru Otani, 2024. "Industry Dynamics with Cartels: The Case of the Container Shipping Industry," Discussion Paper Series DP2024-28, Research Institute for Economics & Business Administration, Kobe University.
    4. Przemysław Jeziorski, 2023. "Empirical Model of Dynamic Merger Enforcement—Choosing Ownership Caps in U.S. Radio," Management Science, INFORMS, vol. 69(8), pages 4457-4480, August.
    5. Mitsuru Igami & Takuo Sugaya, 2022. "Measuring the Incentive to Collude: The Vitamin Cartels, 1990–99," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(3), pages 1460-1494.
    6. Victor Aguirregabiria & Allan Collard-Wexler & Stephen P. Ryan, 2021. "Dynamic Games in Empirical Industrial Organization," NBER Working Papers 29291, National Bureau of Economic Research, Inc.
    7. Janssen, Aljoscha, 2022. "Innovation Begets Innovation and Concentration: The Case of Upstream Oil & Gas in the North Sea," Working Paper Series 1431, Research Institute of Industrial Economics.
    8. Michele Fioretti & Alessandro Iaria & Aljoscha Janssen & Robert K Perrons & Clément Mazet-Sonilhac, 2022. "Innovation Begets Innovation and Concentration: the Case of Upstream Oil & Gas in the North Sea," SciencePo Working papers hal-03791971, HAL.
    9. Raja Roy & Soumodip Sarkar, 2022. "Boundary conditions of the mutual forbearance hypothesis: Impact of technology evolution on multimarket competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2545-2556, September.
    10. Bryan, Kevin A. & Lemus, Jorge & Marshall, Guillermo, 2022. "R&D competition and the direction of innovation," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    11. Suguru Otani, 2024. "Industry Dynamics with Cartels: The Case of the Container Shipping Industry," Papers 2407.15147, arXiv.org.
    12. Hawkes, Adam & Muûls, Mirabelle & Hamilton, James W., 2023. "Big oil and the energy transition: Evidence from M&A," Energy Policy, Elsevier, vol. 183(C).
    13. Suguru Otani & Takuma Matsuda, 2023. "Unified Merger List in the Container Shipping Industry from 1966: A Structural Estimation of the Transition of Importance of a Firm's Age, Tonnage Capacity, and Geographical Proximity on Merger Decisi," Papers 2310.09938, arXiv.org, revised Nov 2023.
    14. Jorge Guzman & Aishen Li, 2023. "Measuring Founding Strategy," Management Science, INFORMS, vol. 69(1), pages 101-118, January.
    15. Poege, Felix, 2022. "Competition and Innovation: The Breakup of IG Farben," IZA Discussion Papers 15517, Institute of Labor Economics (IZA).
    16. Bennato, Anna Rita & Davies, Stephen & Mariuzzo, Franco & Ormosi, Peter, 2021. "Mergers and innovation: Evidence from the hard disk drive market," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    17. Haucap, Justus & Stiebale, Joel, 2023. "Non-price effects of mergers and acquisitions," DICE Discussion Papers 402, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    18. MIYAKAWA Daisuke & OIKAWA Koki & UEDA Kozo, 2022. "Misallocation under the Shadow of Death," Discussion papers 22014, Research Institute of Economy, Trade and Industry (RIETI).
    19. Suguru Otani, 2021. "Estimating Endogenous Coalitional Mergers: Merger Costs and Assortativeness of Size and Specialization," Papers 2108.12744, arXiv.org, revised Mar 2023.

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